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Dennis Wise v. DLA Piper LLP (US) (California Court of Appeal 4th District October 8, 2013)

The California Court of Appeal recently addressed an important issue in the legal malpractice area. The Court held that the malpractice plaintiff cannot prevail based on allegations that the malpractice caused plaintiff to lose the right to collect on a recovery in a lawsuit without competent evidence that the judgment would have been collectible, as speculative expert testimony about collectability will not suffice when the evidence presented demonstrated that the judgment would not have been collectible.

In 1994, the DLA Piper law firm obtained a judgment for client Wise against William Cheng. DLA Piper negligently failed to advise Wise that it needed to renew the judgment and as a result the judgment expired after 10 years. Wise sued DLA Piper for malpractice. The issue at trial was whether the judgment would have been collectible. Cheng testified that he had no assets and relied on money from others to survive, and Cheng’s biggest investor had written off most of his investments. To counter that showing, Wise presented the testimony of a collection attorney as a putative expert. The expert testified that the Cheng judgment could have been collected in the past and might be collectable in the future. The expert relied on possible home ownership and hidden foreign bank accounts, but without conducting an asset search on Cheng or other independent verification. The expert opined about “future collectability” based on Cheng’s proven ability to obtain third party investments in new ventures, and that Wise could have reached that money by “piercing the corporate veil.” In addition, the expert opined that a determined collections effort, including having Cheng’s investors appear at third party debtor examinations, would have induced the investors to pressure Cheng to pay the judgment or, alternatively, to loan Cheng the money to pay Wise. DLA Piper’s expert, another collection attorney, who had done his due diligence, testified that the judgment was uncollectible.

DLA Piper appealed from a verdict in favor of Wise. The Court of Appeal reversed on the grounds that the evidence as to collectability was unduly speculative. The Court confirmed that the plaintiff in a malpractice action must establish that the underlying judgment lost as the result of the attorney’s error could have been collected. (Garretson v. Harold I. Miner (2002) 99 Cal.App.4th 563. 571; Hecht, Solberg, Robinson, Goldberg & Bagley LLP v. Superior Court (2006) 137 Cal.App.4th 579, 591.) While the plaintiff is not required to offer proof establishing causation with “absolute certainty”, he must introduce evidence which affords a reasonable basis for the conclusion that it is more likely than not that the conduct of the attorney defendant was a cause in fact of the result. (Viner v. Sweet (2003) 30 Cal.4th 1232, 1243.) The Court rejected the opinions of Wise’s expert as being based purely on speculation, factual assumptions not supported by the record or fallacious legal assumptions. Specifically, the opinions related to future collectability – premised on his prediction that Cheng could convince investors to invest in his business schemes – merely restated his “reverse piercing” theory which was rooted in both an incorrect legal theory (the law precluded Wise from employing “reverse piercing” to obtain funds paid by third party investors to satisfy Cheng’s debt) and speculation or assumptions not supported by the record.

The Court pointed out that, even if the law did not preclude the future collectability theory, the expert’s opinion was impermissible because it was premised on potential future profits to be earned by an undeveloped business. In view of the California Supreme Court’s recent caution against admitting expert testimony predicting lost profits, the trial court here should have vigilantly exercised a gatekeeping function as to such testimony based on speculation, assumptions and conjecture. (Saragon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 780-781.)

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